3 Ways To Join The Direct-To-Consumer Subscription Revolution

Direct-To-Customer Subscription

The Direct-To-Consumer subscription model is booming. In fact, the online subscription service market has grown by more than 100 percent year-on-year for the past five years, jumping from $57 million in sales in 2011 to more than $2.6 billion in 2016 (McKinsey & Company).

 

Why Now?

A conflation of factors are fuelling the DTC subscription boom.

  • The biggest subscription customer profile is young urbanites. 41% of Netflix customers are 18-34, (YouGov), 82% of the US population, and 74% of the European population now live in urban areas (2018, UN).
  • Customers are increasingly super time poor and value convenience.
  • There’s a continuing demand for more personalised products and services; 80% of customers are more likely to do business with a company that offers personalised experiences (2018, Epsilon Data Management).
  • Customers are self-gifting more and more. Receiving a box through the post each month gives that spark of joy that they crave.

These trends aren’t likely to change anytime soon, so we think the subscription business will continue to enjoy success for the foreseeable.

 

More Than One Way To Skin A Cat

But don’t be fooled into thinking all DTC subscriptions are alike. There are 3 distinct subscription models. And brands are riffing on those 3 models to the extent that there may well just be a subscription model for every product/ service. Let’s take a closer look…

 

Model 1: Replenishment

4 blue boxes of waldo contact lenses on top of each other

Image source: Waldo

This is where consumers who are short on time and money can really benefit. Brands like Dollar Shave Club (the poster boy for subscription models) and Waldo emphasise the savings the customer will gain by going direct and cutting out the middle man (retailer). Both brands sell products that customers need to buy frequently and regularly, razor blades and contact lenses respectively. A subscription guarantees regular delivery, ridding the customer of the need to remember these necessities, freeing them of the hassle of popping to the shops and saving them money while they’re at it.

 

Other brands doing replenishment: Ritual (vitamins); Harry’s (more razor blades); FFS (razor blades for women); and even brands like Lancôme have an auto-replenishment offer.

 

Model 2: Curation

variety of whisky bottles and some glasses on a wooden surface

Image source: The Craft Whisky Club

Where replenishment provides convenience and cost-effectiveness, curation offers variety. Customers buy into curation subscriptions primarily in cosmetics, food and drink and fashion. The real customer benefit is being provided with a monthly (/fortnightly etc.) box of products that are, to a varying degree, chosen specifically for them. In fact, the personalised experience is the top most important reason for customers to continue a curation subscription (McKinsey & Company).

In the case of brands like Hello Fresh and Blue Apron, customers save valuable time and effort spent shopping for and prepping meals. The subscription takes the chore out of cooking and adds delight with the element of discovery that the variety of the offer ensures.

Discovery and delight are vital customer benefits for subscriptions like Foot Cardigan and The Craft Whisky Club. These more indulgent buys are often driven by gifting, or self-gifting. Beauty boxes such as Birchbox also make for excellent gifts, but trialing is a big draw as well. Birchbox has seized upon this, establishing itself as an online shopping destination. So, a customer who falls in love with a trial size beauty product in the box can go and buy the full size product on the Birchbox website.

Curation is epitomised by brands such as Stitch Fix who offer a completely personalised service. For a $20 fee (offset against purchases), a Stitch Fix stylist sends a selection of items based on style, size and budget preferences. Customers benefit from time saved shopping, the expert eye of a stylist, and a personalised service. (In fact, Stitch Fix technically don’t belong here as they don’t require a subscription, but their “regular fix” model is so similar, the difference is semantic.)

 

Other brands doing curation: Graze (snacks), Sudden Coffee, Glossybox (beauty), Mac and Mia (children’s clothes), Take Care Of (vitamins).

 

Model 3: Access

photo of inside the drivers seat of a car, hand on the wheel, with the drover logo overlaid

Image source: Drover

The third model provides customers access to an exclusive service/ product or content and is increasingly popular. Exhibit A: the ubiquitous Netflix.

Netflix launched its subscription service in 1999 back when it was renting DVDs by mail order. Now the Netflix we know and love, claims 73% of US households as subscribers (PWC, 2016). The customer benefit is clear; access to content otherwise unavailable to them, for a relatively modest monthly sum.

Rent the Runway, which started off similarly to Netflix; with a pay per rental model for occasion gowns, has launched 2 subscription offers. These allow customers to wear brands of clothes that would usually be out of budget. This, along with companies like Drover, which gives access to cars via subscription, allows customers to use and experience products they wouldn’t normally have access to.

Finally, brands like ClassPass and MoveGB offer customers access to a variety of classes, gyms, yoga studios etc. The customer is no longer tied to one gym membership, benefitting from the flexibility of the apps as well as the variety.

 

Other brands doing access: Amazon Prime, The New York Times.

 

Is There Scope For Retail Brands In DTC Subscription?

It’s all very well being a green young startup and bravely pioneering down the DTC route, but can it work for big brands? We think it can. Unilever clearly think there’s something in it. They paid $1bn for Dollar Shave Club back in 2016. P&G are also making forays into DTC. The first attempt was with the ill-fated Tide Wash Club, a laundry pod subscription service, and now they have the Gillette Club; their answer to Unilever’s Dollar Shave Club.

Streaking ahead in DTC (though not yet exploring subscriptions) is Nike. Due to the success of both their NIKEiD shoe personalisation service and their Nike+ mobile app, Nike’s DTC business contributed to 24% of the company’s revenue in 2016, up from 17% in 2013. And they predict another 250% growth in DTC over the next 5 years (CoreSight Research).

 

What are the questions you need to be asking if you want to make DTC subscriptions work for your brand?

  • Does your brand have the ability to stretch into the DTC subscription arena? Or do you need to create a new one?
  • What is the business case to your organisation to adopt a new sales model?
  • How could a DTC subscription complement your existing sales models rather than competing with them?
  • Beyond convenience, what are the unique benefits your brand could offer the customer in the DTC space?
  • What is the customer habit/ ritual that you want to reinforce?
  • What is the UX that customers expect?
  • How and to what level should you personalise your offer?
  • What flexibility of service do your customers expect?

 

Drop us a line and we’ll help you answer these questions.

 

 

Further reading: Thinking inside the subscription box: New research on e-commerce consumers (McKinsey & Company).

 

Published 15th November 2018 by Abbie Price @ the Strategy Distillery